Making a living and setting aside funds every month in the savings bank account becomes difficult as living costs and inflation rise. On most days, it seems like one spends more than one earns! However, a basic money mistake most people make is that they depend entirely on their salaries or business income to see them through to the future. Merely setting aside a portion of one’s income every month may not translate into a large sum of money.
Thus, the money one makes must be channelled into the right instruments so that it may grow into a savings corpus for the future. While people look at conventional instruments such as bank FDs or life insurance plans to grow the surplus funds they may have, a more viable option to consider is the Endowment Savings Plan.
This excellent plan is a traditional savings and investment plan. It helps build a robust savings portfolio with long term systematic savings and protection.
Endowment savings plans work thus: the policy holder makes monthly or annual payments. A part of the payment goes towards the premium for the plan, while the remaining is invested in equities or unit-linked market instruments. This latter portion earns returns in the form of bonus for the investor; it comes from profits generated by the companies one holds shares in. These returns help create a savings fund for the investor.
Endowment Savings Plan provides long term savings from 10 to 30 years (basis the tenure chosen) and tax benefits on the purchase of the policy under Sec 80C and 10 (10D) of the Income Tax Act, 1961. The policy holder can choose from the insurer’s flexible payment options for premiums.
This plan comes highly recommended owing to its several benefits:
- Maturity benefits are augmented with Reversionary Bonus and Terminal Bonus.
- There is a death benefit in the plan: on the unfortunate demise of the policy holder while the plan is active, the next of kin receive the death sum assured (with accrued reversionary bonus or terminal bonus) or 105% of all premiums paid, whichever is higher.
- If the policy holder survives the plan tenure, the plan provides the base sum assured plus simple reversionary bonus and terminal bonus. These two bonuses are tacked to the policy from the third policy year till plan maturity or termination, whichever is sooner.